Social Security and the Insurance Illusion

Wilkinson, Will, Freeman

In 1937, shortly after Franklin Roosevelt threatened to destroy the independence of the Supreme Court by "packing" it with ideological cronies, the Court came to heel and handed down verdicts in three cases affirming that the Social Security Act was, unlike several structurally similar pieces of pre-intimidation New Deal legislation, in accord with the U.S. Constitution.1

Wilbur Cohen, a ubiquitous figure in the history of Social Security, provides a window into the administration's state of mind on the Court's momentous decision. At the time of the ruling Cohen was an assistant to Social Security board chairman Robert Altmeyer and recalls gliding down the Supreme Court steps that day "in a glow of ecstasy. . . . When I got back to the office I received Mr. Altmeyer's approval to send out a memo to the staff stating that because of the decision, we could now call the old age benefits program 'old age insurance.'"

Why? Because insurance sounds a lot better to voters than a tax and stream of welfare payments, which is what Social security is. Because, as Cohen explained it, "The American public was and still is insurance-minded and opposed to welfare, the 'dole' and 'handouts.' " The Brain Trust knew about the importance of "framing" decades before Berkeley linguist George Lakoff did.

The irony, or hypocrisy, of Cohen's ecstatic rush to reframe is that, executive intimidation aside, the government won the Social security Act cases by arguing that Social Security is not insurance, but just a plain old tax on wages, falling under Congress's taxing power, and an entirely separate and unconnected welfare program, falling under the "general welfare" provision. The Act was scrupulously drafted to ensure that the tax and the government transfers would not appear to have anything to do with each other. And the program is never described therein as "insurance." The 1960 Flemming v. Nestor decision reaffirms that paying the tax creates no entitlement to benefits.

Nevertheless, FDR pushed hard for a dedicated payroll tax specifically so it would be connected in voters' minds to their benefits in the way the premiums are connected to insurance payments-to create the illusion of property, contract, and legal, moral, and political entitlement. As FDR infamously declared, the dedicated payroll taxes "are political all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions... .With those taxes in there, no damn politician can ever scrap my social security program."2

In anticipation of a constitutional challenge, Social Security officials went out of their way to purge their informational materials of insurance language. A 1937 pamphlet, written shortly before the Supreme Court decisions, described the program accurately and with a minimum of manipulative art: "The United States Government will send checks every month to retired workers ... under the old-age benefits plan .. .The same law that provides these benefits for you and other workers sets up certain new taxes to be paid to the United States government."

The 1938 pamphlet, published after the decisions, shows the insurance-framing project once again in full flower: "Your [Social security] card shows that you have an insurance account with the U.S. Government-Federal old age and survivors insurance. This is a national insurance plan for all workers in commerce and industry .... [T]axes are like the premium on any other kind of insurance."3

From the program's inception the lack of a legally binding entitlement to benefits was deliberately obscured. By framing the program as insurance, it was possible to make benefits seem earned rather than part of a socially stigmatized "dole." Accordingly, during "fireside chats" and public speeches, Roosevelt told American workers that they have an "insurance policy" with the government, that "the insurance policy . …

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